With the digital asset industry expanding at an exponential rate, it's important to know exactly how to store your crypto assets safely.
Tips for Safe Digital Asset Storage
- Safely store your seed phrase, and a backup.
- Keep your wallets updated.
- Store crypto assets offline when possible.
- Diversify your wallets and exchanges.
Let's cover all the different ways to store crypto along with the pros, cons, and risk levels of each. To start, we'll introduce you to the two main categories of crypto wallets.
Custodial Wallets and Non-Custodial Wallets
A Custodial Wallet is a 3rd party wallet such as a crypto exchange, platform, or online wallet that holds and controls the private keys to your cryptocurrency. While you may have an account on an exchange with crypto assets in it, you do not directly have ownership of the digital assets. There is a counterparty risk with custodial wallets, but generally they are easy to use.
A Non-Custodial Wallet gives you full control of your crypto assets and also puts you in charge of keeping your crypto secure. Non-custodial wallets can be paper wallets, hardware wallets like Ledger, or browser extension wallets like MetaMask or Trust Wallet.
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Top Non-custodial wallets
Now that you know the differences between Custodial and Non-Custodial, let’s dive into types of Non-Custodial wallets available today.
Some software or “Hot" Wallets enable you to store your self-custodied digital assets online via a mobile app, desktop, or a browser extension. Examples include Exodus, MetaMask, and Trust Wallet. Software wallets come with many features and functionalities, but are not quite as secure as a Cold Wallet because your assets are online, or “hot”.
A Cold Wallet usually refers to a hardware device for storing crypto assets safely offline. It is considered the safest way to store digital assets. Also called a Hard Wallet, this type of crypto storage is not generally as convenient as online wallets and costs around $50. When you want to use your crypto, you plug in the hardware device to your computer. While they may be a bit complex to set up initially, cold wallets like Ledger and Trezor provide a high level of digital asset security. They also allow you to access multiple blockchain networks and all of DeFi.
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Take extra precautions
Choosing the best non-custodial wallet for long-term crypto storage is the first step. After that, follow these security tips:
- Store the private keys to your crypto wallets offline in a safe location. If you lose them, you may lose the crypto permanently.
- Keep wallet software up to date. Most crypto wallet applications and devices have frequent updates to bolster security, patch vulnerabilities, and add new features. Immediately update your wallet whenever you are notified that an update is available.
- Multi-sig wallets like Electrum enable you to require two or more sets of private keys in order to transact with your Bitcoin. Exchanges use multi-sig wallets to spread their risk in the case of a hack or unauthorized access. Retail traders can also use multi-sigs for added security.
Crypto investors have a multitude of options when it comes to wallets and cryptocurrency storage. Knowing the different types of wallets and their safety levels should be an important part of your cryptocurrency risk management.
A general rule of thumb is to store the bulk of your digital assets offline in a non-custodial (cold) wallet, and the assets you want to use immediately for trading are best secured using a trusted software or browser extension (hot) wallet.
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- Learn to Read Crypto Trading Charts
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Disclaimer: The content of this article is for general market education and commentary and is not intended to serve as financial, investment, or any other type of advice.